Blagnet.net

If another recession follows, then the economy never recovered

Robert Gordon of the Business Cycle Dating Committee says our recession has just ended. He bases his proclamation on some pretty strong precedent, as Donal Luskin explains in the linked article. Gordon looked at the statistics for claims for unemployment benefits during the last several recessions and noticed that, historically, the peak in unemployment claims overlaps perfectly with the end of the recession (as eventually decided upon by the Business Cycle Dating Committee, which is part of the National Bureau of Economic Analysis).

Why does Dr. Gordon think unemployment claims have reached their maximum this time around? Luskin explains:

How do you really know when there has been a “peak” in claims? Just because the four-week moving average turns down for a couple weeks, how do we know it won’t just turn up again and go to new highs?

Gordon himself takes on this criticism. Writing more than two weeks ago, when the four-week moving average was already 3.1% off its early April peak, he noted that the pattern of the decline in magnitude and timing nearly perfectly matched all the previous instances in which no subsequent higher peak developed.

So far he’s right. Looking at the data as of May 14, the four-week moving average of claims (pre-adjustment) was down 4.3%, so the early April reading is looking more and more like a real peak. (The Labor Department on Thursday said the number of newly laid-off Americans requesting unemployment insurance dropped slightly last week after spiking due to auto layoffs.)

The weekly claims data released May 14 did show a modest rise in the number of claims after two weeks of declines, causing the four-week moving average to tick higher. That’s no reason to throw out Gordon’s big idea. No one expects numbers like this to move only in one direction week after week.

Employment might continue to go up, and stocks might, too. Bankruptcies will slow down and banks will probably start lending more money sometime soon, since they supposedly aren’t lending much now. But, I say, if another recession follows that “recovery” in a few years, then the economy never really recovered at all. It just looked like it. It was just fluff, just inflated numbers with no sound production and profit to back them up. Government jobs, government investment, government bailouts/takeovers of automotive companies and investment banks—none of that is real growth and none of that can stop the market from having its way in the end.

The entire crux of the issue of business cycles is that the boom is the poison and the recession is the cure, so if another recession follows within, say, five years, there were too many unprofitable endeavors in our economy that had to be flushed clean by the market, which means our economy will never have experienced an actual, i.e., sustainable and productive, recovery at all. Don’t let easy credit and government numbers fool you.

Posted in Economics